The ‘fiscal drag’ which draws more estates into inheritance tax liabilities is evident in the latest receipts figures published by HM Revenue and Customs.
With the nil-rate band frozen at £325,000 since 2009 and the residence nil-rate band static at £175,000, thousands more families are being ‘dragged’ into the IHT net as asset values increase year-by-year said Ian Dyall, Head of Estate Planning at wealth management firm Evelyn Partners.
Inheritance Tax receipts for April 2025 to September 2025 are £4.4 billion, £100m higher than the same period last year.
The numbers continue a ‘familiar trend’ said Will Hale, CEO of Key Advice & Air and ‘highlight once again the government’s commitment to a tax raid at point of death on wealth that people want and expect to be passing to the younger generations.’
The latest data, which show total tax receipts of £438.6bn in September, are up £32.1bn on the same month last year, offers a ‘revealing snapshot of the public finances and how heavily the government continues to lean on fiscal drag to prop up revenues’ said Rachael Griffin at Quilter.
With the budget just weeks away, the government may have little option but to seek alternative ways to raise money if Chancellor Rachel Reeves is to stick to the Labour party’s promise not to raise National Insurance contributions, basic or higher rates of income tax, or VAT in the upcoming budget. A recently published Institute of Fiscal Studies green paper suggested it would be possible, but advised against ‘directionless tinkering and half-baked fixes’ said Isaac Delestre, a Senior Research Economist at the Institute for Fiscal Studies (IFS).
With reports of the Chancellor softening her stance on Agricultural and Business Property Relief (APR/BPR) she could well look elsewhere around IHT to ‘prop up the tax take’ said Dyall.
“Possibilities include a crackdown on gifting, which could take the form of a lifetime gifting cap replacing the current unlimited gifting rule under the seven-year exemption, or extending the seven-year rule out to 10 or more years. The combination of unspent pension assets becoming subject to IHT, fears over possible restrictions to pension tax-free cash, and speculation that gifting rules could be tightened up, has caused some families to hastily withdraw pension cash and start giving it away.”
The upcoming budget could see further tax rises warns Hale, an issue no longer the preserve of the rich; and with £3.7 trillion of property wealth sitting in the hands of the over 55s, later life lending solutions ‘need to be central to all financial planning considerations around funding older age and intergenerational wealth transfer.’
Whatever happens in the budget the direction of travel indicates the government are targeting people’s ability to pass on wealth gradually over time which, combined with the planned inclusion of pensions within IHT from 2027, risk ‘transforming what was once a niche tax affecting a small minority into one that captures an increasingly large share of the population’ concludes Griffin.
One Response
With IHT receipts climbing and fiscal drag pulling more families into the net, it’s no longer enough to rely on traditional gifting or outdated assumptions. It’s time to take action, have a clear proactive, strategic approach to generational wealth transfer, that protects legacy, and aligns with long-term family goals.